E‐diligence: Money Laundering Risks in the Electronic Arena
| DOI | https://doi.org/10.1108/eb027300 |
| Published date | 01 April 2001 |
| Pages | 146-149 |
| Date | 01 April 2001 |
| Author | Brian P. Joyce |
| Subject Matter | Accounting & finance |
Journal of Money Laundering Control — Vol. 5 No. 2
E-diligence: Money Laundering Risks in the
Electronic Arena
Brian P. Joyce
The advent and increasing application of electronic
commercial transactions, e-banking, new payment
technologies and digital currencies poses a threat to
traditional due diligence systems in the international
campaign against money laundering. As the electro-
nic infrastructures of global commercial transactions
and Internet financial services incubate, compliance
dilemmas continue to evolve.
INTRODUCTION
Critical anti-money laundering initiatives in the year
2000 consisted of the Financial Action Task Force's
(FATF) Non-Cooperative Countries and Territories
(NCCT) crusade, the voluntary code of conduct
agreed to by 11 world financial central banks
known as the Wolfsberg Principles, and the signing
by over 125 countries of the United Nations Conven-
tion against Transnational Organized Crime. While
each of these collaborative steps, respectively,
addresses anti-money laundering concerns in the pre-
sent day environment, there are complex obstacles
that lie ahead in the know-your-customer (KYC)
and know-your-buyer (KYD) territory. The trans-
formation into electronic format of financial service
offerings, global trading systems, and new payment
technologies are gradually being addressed through
legislation and by regulatory officials, and pose a
series of rather avant-garde problems for a number
of industries. The primary obstacle is mapping out
and properly constructing a framework for compre-
hensive due diligence that considers electronically
oriented financial services and transactions that func-
tion on an international platform. The progression of
e-commerce activity, e-banking operations, and
e-payment technologies comprises a unique basket
of money laundering opportunities and threats
to the individual consumer, corporate business
community and governmental institutions.
E-DILEMMAS
The recent FATF report on Money Laundering
Typologies (2000—2001) identified online banking
Journal of Money Laundering Control
Vol 5. No 2.2001.pp 146-149
© Henry Stewart Publications
ISSN 1368-5201
and Internet casinos as major money laundering
issues. As noted in the text of the report, almost all
FATF members reported a presence in their jurisdic-
tions of web-based financial service offerings, to
include the following; direct payments, electronic
funds transfers, issuance of cheques, purchase of secu-
rities and opening/closing of accounts. The inherent
money laundering risks associated with these financial
service offerings are identified by precise Internet
characteristics and not specifically related to the over-
all nature of the electronic activity
itself.
The charac-
teristics detailed in the report included: the ease of
access through the Internet; the depersonalization of
contact between the customer and the institution;
and the rapidity of electronic transactions.
These risk characteristics limit the effectiveness of
implementing due diligence procedures and internal
controls in numerous areas, to include: e-commerce
legislation, international trade-related money
laundering prevention, and BSA compliance.
Legislative obstacles
E-commerce legislation is now being constructed in
most developed nations, and while lawyers are
attempting to apply a traditionally rooted style of
legal scripture in this construction, numerous issues
have cropped up that defy this old-school basis.
Most notably, the realm of e-banking has witnessed
broad legislative debate across the following sectors:
contract law; consumer protection; the paperless
office; payment systems; and new customers. When
combating money laundering across international
borders, these five notables morph from legislative
obstacles into a legal quagmire for financial regulators
and law enforcement officials. Attempting to estab-
lish jurisdictional boundaries, proving ownership
obscured by electronic anonymity, investigating
electronic audit trails lacking regulation and over-
sight, and the implementation of fundamental
know-your-client standards by compliance officers
are all examples of legislative obstacles that hinder
anti-money laundering enforcement.
One example of KYC difficulty as a legislative
by-product in the electronic age is the identification
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